How to reduce your student loan payments

By Jack, on May 11th, 2013

If you took out student loans in 2007 or later, then you are probably eligible to switch your payments to a percent of your income. The program works like this, according to the Wall Street Journal: “Borrowers in the program make monthly payments equivalent to 10% of their income after taxes and basic living expenses, regardless of how much they owe. After 20 years of on-time payments—10 years for those who work in public or nonprofit jobs—the balance is forgiven.”

If you have high loan balances and not too high income, this could save you a lot of money. The Journal gave an example of a married 30-year-old mother of three who has accumulated and unusually large amount of loans — $300,000 — going through Law School and plans to work in government. “According to a repayment calculator created by the New American Foundation”….[download available here: http://edmoney.newamerica.net/blogposts/2012/new_america_releases_income_based_repayment_calculator_for_forthcoming_report-72603] “…. a Washington-based think tank, Ms. Rodriguez-Marshall would pay $273 per month in her first year under the program; without it, she would owe $3,562 a month. Under the program, she would pay about $102,000 over 10 years, and the government would forgive about $639,000, which includes interest.”

The Obama administration hopes to extend the program to everyone with unpaid student loans and to make the loan forgiveness not taxable (loan forgiveness is usually considered as income for tax purposes); but this requires an act of Congress.